Gas and oil rivalry in the East China Sea

Jul 27, 2004 02:00 AM

by Kosuke Takahashi

Current explorations of an offshore gas field in the East China Sea by both China and Japan have recently strained relations between the two powerful nations. The tension over sovereignty of this disputed gas field appears to be on the rise, exacerbating mutual mistrust dating back to the Sino-Japanese War and World War II -- and not allayed by China's meteoric economic rise and voracious appetite for oil and gas.
While Japan is concerned that Chinese drilling could siphon off natural gas from Japan's territorial seabed, Beijing considers Tokyo's claim as infringing on its interests and sovereignty. China appears to believe that Tokyo feels threatened by China's enormous economic development and is trying to contain it, at least in the East China Sea. This distrust and petroleum rivalry could lead to further serious problems unless both countries swiftly reach some political agreement on the development of the gas field.

The troubled, indefinable boundary
The issue first arose in August 2003 when the Chinese government concluded development contracts with oil development companies in China and other countries, including oil majors Shell and the United States oil company Unocal, for exploration and production gas projects in the East China Sea worth billions of dollars. The Japanese government has since expressed concerns that the fields may encroach upon Japan's exclusive economic zone (EEZ), and Tokyo officially asked Beijing for precise data on the location of those fields, but Beijing has declined that request.
The issue surfaced again in early June this year when Japan confirmed that Beijing has started constructing a drilling facility in the area within China's EEZ, 4 km from Japan's claimed centre line between each country's coasts. In addition, Japan recently confirmed that Beijing has started constructing drilling facilities at another site, fuelling concerns that it will launch similar projects in the near future.

As tensions increased, Chinese Foreign Minister Li Zhaoxing proposed when first visiting Japanese Foreign Minister Yoriko Kawaguchi on June 22 that China and Japan cooperate in exploring the oil and natural gas reserves in the East China Sea. But instead of accepting that offer, Kawaguchi requested that China provide the exact locations, depths and other related data of its offshore drillings underway in the East China Sea, fearing lest that China may have violated Japan's interests in tapping marine resources.
The Japanese government appeared to conclude that China is collecting oceanographic data for possible submarine warfare around that area, which Japan considers strategically essential for China to boost its military presence vis-a-vis Taiwan as well as the United States, according to conservative Japanese media, such as the Sankei Shimbun. The disputed gas field is in the vicinity of Taiwan and the disputed Senkaku Islands, which are claimed by both countries. The Japanese government seems to believe this was why China has refused to give any data and information on its oil and gas development in the region.

On July 7, Japan started exploring its own EEZ in the East China Sea for natural gas by sending survey ships, apparently seeking to counter ongoing gas exploration by China at a nearby location. The following day in Beijing, Chinese Vice Foreign Minister Wang Yi summoned Japan's ambassador and delivered an official protest, criticizing Japan's "act that infringed upon China's interests and sovereignty".
Behind this skirmishing are the conflicting views of the two countries on where the demarcation line should be placed between the EEZs of the two countries. Both have been at loggerheads over the boundaries. While Japan defines it as the line marking an equal distance from the coasts of the two countries, China claims its EEZ extends to the edge of the continental shelf. The gas field in question, named Chunxiao, is located four km inside the Chinese side of the EEZ boundary claimed by Japan.

Legally, the United Nations Convention on the Law of the Sea allows coastal countries to regulate catch and seabed resources in an economic zone extending 200 nautical miles, or 370 km, from their shores. But Beijing and Tokyo, both of which signed the convention in 1996, have not agreed on where their sea border lies. The UN says it will decide on global offshore territorial claims by May 2009. In February 2001, Japan and China only agreed to give each other two months' prior notification with regard to maritime scientific research activities in waters around the two countries.
For this reason, China claims the Chunxiao gas field does not cross the border line and would not even if the Japanese method of demarcation is adopted because there are still four km to Japan's claimed centre line (although China has never accepted the legitimacy of the Japanese demarcation). Meanwhile, Japan says it has a right to claim its share if resources in the Chinese EEZ are found to straddle the intermediate line. Japan has asked China to provide experimental drilling data, though these efforts have been in vain because it decided to explore the site by itself and has started it already.

China, the world's No 2 oil consumer after the US China, the world's No 2 oil consumer after the US, is racing to develop natural resources to meet its rapidly growing domestic demand for energy as the economy races ahead. It is believed that since last summer China has stepped up development of gas fields in the East China Sea. That was when China suffered severe energy shortages, especially a shortage of electricity.
China is still in dire need of electric power for its heavy industry development and manufacturing sector. Chinese experts believe the 2004 energy shortfall to be at least as severe as that in 2003. China's commercial hub of Shanghai, grappling with a worsening power crunch, ordered its two largest auto makers to shut down production for more than a week. The sharp energy shortfall will exist until 2006, according to a recent prediction issued by China Electricity Council.

Moreover, at the National People's Congress in March, China pointed to the development and protection of marine resources as one of the government's priority issues, underscoring the country's growing sense of crisis over energy security. The Institute of Energy Economics in Japan also forecasts that oil consumption in China will grow to 590 mm tons in 2020 from 220 mm tons in 2000, and the country's oil imports will soar to 450 mm tons during the same period, compared with 250 mm tons for Japan.
Furthermore, China is expected to become a net importer of natural gas by 2010. China is also expected to become a net importer of gasoline within this year. China's dependence on the region's oil is expected to reach 50 % in 2020 from 15 % in 2000, according to experts.

More recently, in the January-June period, fuel oil imports hit 16.37 mm tons, a whopping 53.5 % rise on the same period a year ago, according to the latest data from Chinese customs.
Meanwhile, Japan, the world's second-biggest economy, has almost no natural resources of its own and relies on the Middle East for nearly 90 % of its oil as an energy source. Tokyo hopes to develop other sources, and has been negotiating for access to oil and natural gas reserves with Russia and Iran, among others. Japan is also competing with China over Russia's project to extend a crude oil pipeline in Eastern Siberia. While China has proposed stretching the pipeline inland to Daqing, Japan is seeking an extension to Nakhodka, a port city facing the Sea of Japan.

For Japan, no choice but to work together
Japanese experts believe Japan is facing a tough question on how to deal with its neighbour, which is emerging as an energy guzzler. The problem is that the Chunxiao project, which has jangled Tokyo's nerves, also involves several US and European energy giants and is already at the advanced stage. Gas is scheduled to be pumped to China as early as next year. It is also not clear whether Japan can chip in at this late stage, even if it accepts China's joint-exploitation proposal. Some sceptics say China is only playing for time, not giving Japan any data on the project.
China has also been operating research vessels within Japan's EEZ without notifying the Japanese government in advance. These activities have served to make Japan wary about Beijing's proposal for joint development. Japan's Chief Cabinet Secretary Hiroyuki Hosoda said the Japanese government is planning to lodge a stronger protest with Beijing over the repeated presence of Chinese survey ships in Japan's EEZ.

But there are some signs that two counties are beginning to move toward cooperation in energy to find complementary positions. For example, in the private sector, Japan's largest oil refiner Nippon Oil Corp teamed up with PetroChina in refining and exporting crude oil. The tie-up will solve the dual problems of a refining capacity shortage in China and excess capacity in Japan.
To be sure, on the energy issue, Japan and China have no choice but to work together, although occasional friction is likely because the matter is complicated by historical issues and the territorial dispute. If the current standoff continues, Japan might want to accept China's joint project proposal, taking the opportunity to expand cooperation in resource development with China and to improve the climate for future cooperation.

The two countries surely need to explore ways to cooperate, rather than compete for energy resources in Northeast Asia, which as a whole will need to import about 70 % of its oil from the Middle East in 2020.
Under the circumstances, it would be more beneficial for both Japan and China to forge an alliance in price negotiations than to compete. For Japanese companies in the energy sector, China is a huge, lucrative market. And for China, Japan's energy-saving and environmental-protection technology must be very attractive.

Kosuke Takahashi is a former staff writer at the Asahi Shimbun and is currently a freelance correspondent based in Tokyo.

Source: Asia Times Online
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